RURAL CREDIT: AGRICULTURAL LOANS POSE RISKS FOR VILLAGERS
Susanna Shahnazaryan
20 10/03/01 | 16:18
Plans Underway in Syunik for Community Credit Consultants
Before I could even get my foot in the door of the Babayan house,
three year-old Davit yelled out, "Kamo was here. He tore the rug from
the wall and took off with it." He repeated this a few times, probably
hoping to hear some words of consolation from the unknown guest.
Grandpa Samvel Babayan finally explained what the young boy was
blabbering about. "We owe someone money. The creditor came and took
the rug, saying that he’d bring it back once we paid the debt."
The debt owed by the Babayan family was paid off with just the
rug. In 2008, the family put their home in the village of Verishen,
Syunik Marz, up for collateral in exchange for a 2 million AMD loan
from ACBA Credit Agricole Bank. They wanted the money to invest in
the family business.
Babayan family loses house in bank seizure
Samvel Babayan says that they used the loan to purchase 220 head
of sheep from a man named Melik in the village of Tegh. Mr. Babayan
says that the only revenue they got were the sixty lambs born from
the herd. In an unfortunate twist of fate, the rest of the herd was
soon infected with brucellosis and had to be put down. He says the
village veterinarian was informed about the incident.
The Babayan family was caught in a bind. The first payment on the loan
was due but the family was still trying to find out if the livestock
were indeed infected before the actual sale took place.
For a long time, the Babayan’s never paid off the loan principal or
the interest. For violating the terms of the loan, ACBA’s Goris branch
took the matter to the courts last year. In May, the court ordered
that the house, put up as collateral by the Babayan’s, be seized.
According to Gagik Ohanyan, an official with the Syunik Compulsory
Enforcement Service (CES), the court established the debt owed by
the family at 1.752 million AMD.
All the while, the bank and the Babayan’s had entered into
negotiations. Nvart, Samvel Babayan’s wife, says that they sold off
the rest of their livestock and went to another credit agency for a
loan in order to pay off the interest on the ACBA loan. The family
also borrowed money from individual creditors.
Mrs. Nvart notes that while credit officials with the bank’s Goris
branch and CES personnel gave them a certain "grace period" to pay off
the loan, the family just wasn’t able to pay it all off. As a result,
their house was put on the auction block.
The family held out hope that the house could still be saved even
though only one member of the household was working. This was the
father, who worked at a private farm.
Agricultural loans pose specific risks
The question of whether or not the Babayan’s used the loan money
judiciously is perhaps another matter. We should remember, though,
that Edgar Tokhsats, who heads the Syunik Foodstuff Safety and
Veterinary Department, denied claims that the 200 heads of sheep had
been infected by the disease.
At the heart of the matter is the fact that the credit agency never
took such a risk factor into account, even though one could argue
that making loans in the agricultural sector carries an inherent risk.
According to Gagik Petrosyan, who was selected to head ACBA’s Credit
Department at the Goris branch one month ago, such evidence was never
included in the loan contract. He didn’t deny the fact that there were
many outstanding agricultural loans in the area where the deadline for
payment had expired and that the bank had entered into negotiations
with the loan recipients in order to avert taking the cases to court.
The Babayan’s aren’t the only family in the region that have ended
up in the clutches of the "credit web".
The criminal case involving the former head of Ardshininvest Bank’s
Gyumri branch office is still under investigation. Due to the bank
official’s actions, scores of local families suffered losses.
There’s also the case involving the ex-head of "SEF International’s"
Gyumri branch. The representative of this credit agency was found
guilty last year of expropriating customer loan payments.
Avert Harutyunyan, SEF’s Regional Director, said that while some
people have been found guilty in the case involving the unpaid 32
million AMD loans, the investigation is continuing given that the
fate of seventy debtors is still undecided.
Mr. Harutyunyan added that loan recipients often violate the terms of
their contracts and that unpaid loans constitute 12% of total loans
made; six times the norm.
Syunik plans advisory agency for farmers
It thus becomes apparent that a large segment of potential loan
applicants do not possess enough information before signing on the
dotted line. The issue was raised by the Swiss Agency for Development
and Cooperation, an official aid organization of Switzerland, during
the preliminary stages of several agricultural programs being drafted
by the Syunik Regional Administration.
One of the projects, the "Farmers’ Revenue and Credit Advisory
Program", envisages the training of one consultant per sixteen regional
communities and the creation of a financial/advisory agency.
In the opinion of Mr. Harutyunyan from SEF, this isn’t an effective
approach to address the credit issue.
However, many local community government heads, who often sign as
guarantors for loan applicants, believe that such measures might
serve to educate villagers regarding the loan process and what they
need to take into account before assuming such financial obligations.
Mr. Harutyunyan says that in the near future SEF is planning to offer
local government heads credit funds to make up their municipal budget
deficits.
In the meantime, he’s convinced that what’s needed is a broad-based
informational campaign aimed at potential rural loan applicants,
explaining both the risks and advantages of credit financing.
Mr.Harutyunyan is sure such a campaign will be launched.